Condos Set for Toy Building

September 1, 2011

Condos Set for Toy Building

The Wall Street Journal 8/22/2011

By CRAIG KARMIN

The Witkoff Group, which prevailed in an auction for one of the former International Toy Center buildings, is teaming up with a Morgan Stanley real estate fund for a $290 million condo conversion of the property, say people familiar with the matter.

The developer and the real- estate fund are planning to create about 145 luxury condo apartments at the onetime office building at 1107 Broadway, next to Madison Square Park.

Witkoff and Morgan Stanley are seeking a financing partner, but people familiar with the matter said they would close the deal next month even without debt in place.

While the pace of new condo construction ground to a halt during the financial crisis, there has been a minor flurry recently of prominent new projects aimed at the well-heeled buyer.

Extell Development Co. has built more than 20 stories of a projected 1,004-foot hotel and residential tower next to Carnegie Hall, while real-estate investor CIM Group with developer Harry Macklowe are planning their own towering luxury condo building on Park Avenue at the former Drake Hotel site.

Meanwhile, a nearly-finished glass tower, known as One Madison Park, is attracting interest from a number of local real estate firms that want to resuscitate the stalled project, including giant developer Related Cos. The building is also located at Madison Square Park and could compete for buyers with 1107 Broadway.

Witkoff acquired the 16-story Broadway property, which has about 350,00 square feet, with a winning $190 million bid in an unusual one-day auction in June conducted for seller Lehman Brothers by the broker Eastdil Secured.

The event attracted a number of heavy hitters, including CIM and Mr. Macklowe, SL Green Realty Corp., and L&L Holding Co. All of them assembled at the Third Avenue law offices of Schulte Roth & Zabel LLP to bid on the property, according to people familiar with the matter. The bidders declined to comment or could not be reached for comment.

The participants were required to post $5 million two days before the auction, and the winner had to wire another $5 million within 24 hours of its conclusion. Typically, properties of this size and price are carried out through blind auctions in multiple rounds that could stretch for weeks.

Witkoff and Morgan Stanley expect to spend $100 million to renovate the building, which has been virtually vacant since 2007. The interiors have already been demolished and while the building isn’t landmarked, the new owners aren’t expected to make significant changes to the property’s exterior, say people familiar with the matter.

Lehman Brothers lent more than $300 million to a venture led by Tessler Developments, which had also planned a condo conversion for 1107 Broadway. But the developers defaulted on their debt before the project could get going.

In June, Lehman also agreed to sell its majority stake in 200 Fifth Avenue, the other Toy Center building, to a real-estate fund run by J.P. Morgan for about $700 million. The building is home to popular Italian food marketplace Eataly and a Tiffany & Co. store.